tv Nightly Business Report PBS June 18, 2012 7:00pm-7:30pm EDT
>> this is n.b.r. >> susie: good evening, everyone. i'm susie gharib. tom is off tonight. an election win for greece's pro-bailout party leads to new hopes for the eurozone. president obama attends the g-20 summit in mexico, where the focus is europe's debt crisis. and with a key federal reserve meeting coming up tomorrow, we kick off a week long look at the fed and whether it's done too much or too little to boost the u.s. recovery. that and more tonight on "n.b.r." president obama welcomed today the greek election results, saying it's a positive step in stabilizing the world financial system. he's in los cabos, mexico where he is meeting with leaders of from the world's top 20 nations for a two day summit.
a big topic at the summit will be greece's sunday elections, where the centrist new democracy party won the most votes and was asked to try to form a coalition government. president obama called on world leaders to work together to boost the global economy. >> we are going to be working under your leadership with our european partners and with all countries to make sure that we're contributing so that the economy grows, the situation stabilizes confidence returns to the markets. >> susie: our coverage of the greek vote and what's next for europe's financialrisis continues. we talk with harvard economics professor ken rogoff about the global economic impact. and analyze today's market reaction with wells fargo strategist, john manley. also still ahead, microsoft's expected to make a major announcement tonight, many bets are it's a tablet. will it be a game changer? it's tonight's word on the street with james rogers. "nightly business report" is brought to you by:
captioning sponsored by wpbt >> susie: victory for pro- bailout parties in greece meant an anti-climatic day for stocks on wall street. the dow lost 25 points, while the s&p 500 added two. the nasdaq bucked the ho-hum trend, tacking on 23 points or nearly 1%. for the last six weeks, greece's pending election topped financial market headlines. suzanne pratt takes a look at why investors have already moved on. >> reporter: so much for the greek elections giving u.s. stocks good reason to rally. despite the hopeful outcome yesterday in athens, investors today were stressing about the global economy. exacerbating those concerns:
rising bond yields for spanish and italian debt. experts say that means the fear of a european contagion is heating up. >> this is the problem with the eurozone. it's 16 or 17 countries, kind of like herding cats. i means it's almost impossible. if it's not one thing, it's another country. >> reporter: worries about europe's financial crisis caused a selloff in u.s. stocks that began in may and resulted in a 10% slide for the s&p 500. in the last few weeks, however, it has recouped about 5%. still, europe's mess is likely to keep the u.s. stock market volatile this summer. and, some market pros predict a rally this fall, as investors realize the u.s. economy is in okay shape, relatively speaking. >> the modest growth we're seeing here is pretty dependable in the united states. and i think around the world, more people are realizing that
and they're becoming more and more interested in the u.s. stock market. >> reporter: wren expects the s&p 500 index to end the year anywhere from 1,400 to 1,450. >> about the middle of our target is a 13% gain. so that would certainly look good for this one year period. but, if you balance it over 2011, 2012, you're more in that 6% to 7% range. >> reporter: any rally we might see, has plenty of potential speedbumps. in particular, if greece has to exit the eurozone in a disorderly fashion, or if spain's situation deteriorates further. suzanne pratt, "n.b.r.," new york. >> susie: our guest tonight also says europe is not close to any solution. he's kenneth rogoff, professor of economics at harvard university. is so ken, sounds like even with this positive election result europe is still facing the same problems, right? >> yeah, i mean i think the way to look at it is it's not a supernegative election result.
they didn't decide to blow up the euro today. but it's still a mess. and frankly the pro bailout government that won in greece doesn't control a lot of support, doesn't have a lot of popularity, and this austerity program is not working. they have 50% unemployment among greek youth who supported the opposition party. >> susie: and that's why we're hearing from a lot of analysts today that it's just a matter of time that greece is going to exit the eurozone. if that were to happen s that good or bad whether we're talking about europe, greece or the united states? >> well, if it happened right now f it happened today the reason all the g-20 leaders are relieved is they really didn't have a plan europe has a monday currency but it doesn't have a common government. they don't have a way to deal with problems. they only have a way to deal with when things are good. i think for greece in the long term it really would be better if they can get a
soft exit, stay in the trade zone, the european union but have their own currency so it can be more flexible. the prounl is that who is next. would it be forth gal, would it be spain, would it be italy? they are in this limbo where they are unified in this currency but not outside of that. and its it just doesn't work. >> well, you mentioned pain and that was the talk on wall street as you heard in suzanne's report where the yields on its bonds are hitting new levels. can spain come up with the funds so it can avoid a default and meet all of its obligations or is spain going to be the fix greece? >> well, i think the question is, is how long is europe going to back spain. they're effectively getting money under the table from the european central bank through this complex mechanism that essentially allows this central bank of spain to borrow from the
central bank of germany under the table through the european central bank. but that can't go on forever because the germans have caught on to that. they say wait, there's got to be a limit to this. and chancellor merkel says look, we are willing to put a lot of money in but we want to see some reform. we want to see movement towards political union. that was promised us. we want to see regulatory union, and countries like france, the other big partner here they don't want to. they have been pulling back in their vote so there's a real doesel going on. it's about much more than greece. i wouldn't assume it will fall apart. i would not assume that but you would have to take a huge leap towards coming together or fall apart. >> susie: you've been going back and forth to europe, and talking to a lot of the key players in this whole situation. what is your sense of europeans wanting to hold the whole union together or not. >> well, on the one hand
they live through lay-- they lived through the 2 -- lehmann, they lived through 29 o 008 crisis. they don't want that knocking on their door. that was awful. they are all told by everyone that if you don't do something it could be worse. on the other hand, when you say look, if you don't want that to happen, you have to leap forward towards having a common treasury, towards having a common bankment and they say you're nuts. we had two world wars. we're to the about to do that. >> susie: complicated situation. ken, thank you so much. kenneth rogoff, professor of economics at harvard university.
>> susie: some upbeat news about housing today: an index measuring homebuilder confidence is at its highest level in five years. the national association of homebuilders said its housing market index rose slightly in june to 29 that's twice as high as the same period a year ago. it's still well below a level considered healthy: a reading of 50 or more is a sign that homebuilders view housing conditions as good that hasn't happened since before the recession in 2006. that housing report, plus a recent string of weak data about the u.s. economy will be on the agenda at tomorrow's meeting of the federal reserve. chairman ben bernanke and other policy makers will be debating whether they should do more to boost the economy and keep the mess in europe from dragging down the u.s. economy. with so much at stake, we'll be spending this week taking a hard look at the fed and what it should or shouldn't be doing.
darren gersh begins with a look at how effective fed policy has been. >> reporter: the federal reserve figures its aggressive bond buying program known as quantitative easing has brought down long term interest rates by more than half a percentage point. the key question is did that make much of a difference to the economy? >> we assume the answer is yes, because we think that lower interest rates are more likely to spur spending than higher interest rates, but we haven't really a good answer on that. >> reporter: it turns out it's really hard to figure out what a huge, complicated economy like ours would have done without the fed doing this one thing. even if this one thing is buying bonds worth more than $2 trillion. >> and trying to figure out where we would be without this is very hard given that there are so many other things going on. there are earthquakes in japan, there's the european crisis. >> reporter: the san francisco federal reserve bank did some research and found the fed's bond buying program boosted the stock market and lowered the value of the dollar which should boost exports. adding it all up, the san francisco fed estimated the
economy is now 3% bigger than it otherwise would be. if that's true, then why is the economy struggling now? economists fear the answer may be that monetary policy is just less effective than it used to be. >> monetary policy is less powerful, because households, and businesses are not willing to borrow anymore. therefore, if they're not willing to borrow, there is no extra boost to aggregate demand and g.d.p. >> reporter: and if monetary policy is less effective, critics warn doing more of it won't help. in fact, it could just lead to higher inflation down the road. >> the fed is in so deep in zero rates and the size of its balance sheet that just unwinding its policies will take a long time. the fed has not had a good historical track record of exiting ease when that's been necessary. >> reporter: congress has given the fed two jobs: keep prices stable and keep unemployment low. right now the fed is not succeeding on either count. which raises the question whether it is really trying hard
enough. >> if bernanke stood up and pounded the table and said i will not let this be merely a faltering recovery, i want a strong recovery and i will do everything i can no matter what. that is going to cause businesses to invest. >> reporter: but most economists expect to see small moves and not table pounding when the fed chairman faces reporters this wednesday. darren gersh, "n.b.r.," washington. >> susie: our next guest says the next six months will be quote "difficult" for the markets. he's john manley, chief equity strategist at wells fargo advantage funds. hi, john, welcome. so much for that big fat greek relief rally everybody was counting on for today. what is your take on-- take on today's market action? >> i think we saw the rally on thursday and friday. i think the market traded off in may in anticipation of this and spanish issues. and i think it was expected to a certain degree that we get a good result out of greece and we did. so there we are. >> susie: do you think that these problems in europe
will start pushing more cash into the u.s.? i mean in an odd sort of way do these financial problems in europe turn out to be a positive for the u.s. stock market? >> well, they definitely i at this draw some assets into the united states. some is going into treasuries right now. the u.s. is still the u.s. when it am coulds to that sort of thing but i do think that ultimately it does push money in our direction. i would rather have the help on the economy than the market though longer term. >> susie: uh-huh. we're coming up on the second half of the year. give us your base case scenario of what we can expect for the next six months. >> well, i think wall street expects bad news and when it doesn't get the market tends to retire so we had in the first quarter of this year pretty good period, fog really bad happened. the market went significantly higher. and when something does happen that is kind of bad there are real problems and the market comes right back down. that is the trading range. i think goes back and forth. i think the market is trying to find itself. i think it's a base. i think it's bouncing along the bottom and i think every move down that we have in
the market really does push policymakers to make more difficult decisions which is good. >> susie: which is the biggest issue, you say there are a lot of issues. which is the biggest issue, is it what is going on in europe or more of what is going on here at home, that our economy is just sluggish and weak? >> i think ultimately what happens at home is more important. but it's all intertwined it is a very, very complicated economy. the world economy is extremely complicated. and i think that obviously we need europe to do certain things it can't be weak forever. i don't think it comes home right away. i think the real issue ultimately is going to be profits and profitability. if profits hold up throughout this year then i will be right and the market will do well next year. but that is what we have to prove. >> and what do you think about corporate profit os. are they going to come through? >> i think they will. i think profits are very high by historical standards. we know that but i don't think it is cyclicalment there are real improvements in terms of efficiencies, effectiveness. that doesn't go away with a slightly weaker economy. i think that is a positive surprise waiting to happen.
>> susie: you heard darren's report about thed if and tomorrow they kick off that et mooing. a lot of investors are couldn'ting on some news out of the fed, maybe some more stimulus measures to boost the economy watch. do you think? >> i don't see why they have to do it right away. you don't want to-- your resources when you can. when you have to use it you want to have it be somewhat fresh. you don't want to come off another round qe whatever. i think it's important that the fed say that they will do it if it's necessary. i suspect they don't think it's necessary right now but i think there will be language that effectively says if you need it we're here. >> okay, we'll find out soon enough. always a pleasure talking with you, john, john manly, chief equity strategist at wells fargo advantage fund.
>> susie: another safety investigation for toyota, after a recent history of recalls. now the national highway traffic safety administration says its investigating 32 reports of fires starting in vehicle doors. the possible culprit: a faulty power window switch. an estimated 1.5 million vehicles built between 2007 and 2009 could be impacted. models include the toyota camry, camry hybrid, rav-4 sport utility vehicle, yaris subcompact and highlander hybrid s.u.v. toyota says call your dealer if you smell smoke or feel heat in your vehicle's doors. on wall street, a mixed close for stocks as investors looked beyond greece to worries the crisis is spreading to spain and italy. many investors are sitting on the sidelines, so trading activity has plummeted to its lowest levels of the year. big board volume weighed in at
704 million shares, while nasdaq volume came in at over 1.5 billion. homebuilding stocks were market leaders today, thanks to that upbeat homebuilding report we told you about earlier. lennar, d.r. horton and pulte all gained at least 3%. after the bell, j.c. penney announced that its president michael francis is leaving, effective immediately. no reason was given and he's been on the job only 8 and a half months. the shares fell 4% in after hours trading to their lowest level since august of last year. two big shoe retailers were also in the spotlight today: d.s.w. and shoe carnival. d.s.w. slumped 11%. the company warned of weak second-quarter earnings due to unexpected markdowns, as well as rising costs for an expansion plan. shares of shoe carnival also got socked, losing 77 cents, even though the company announced a
dividend of five cents a share on friday. shares of retailer body central lost half their value. the company cut its second quarter outlook, due to heavy discounting to clear out merchandise. shares of petsmart moving in the opposite direction up $2.37. the company hiked its dividend 18% and announced a new share buyback program. we also saw big moves in several drug stocks today, including infinity pharmaceuticals. that stock closed down 7%, after trading as low as $11 a share. infinity is ending phase two studies of a drug to treat bone and cartilage cancers, blaming disappointing results. it's another big blow for infinity: which scrapped trials of a pancreatic cancer treatment earlier this year. facebook shares rallied today on the one month anniversary of its initial public offering. it rose $1.14 to $31.41.
that's still well below its offering price of $38. the social networking giant is buying face.com, a facial- recognition tech company. the terms of the deal were not announced. and here's a cool story to tell you about: an i.b.m. supercomputer has set a new world record for speed. i.b.m.'s sequoia system beat out the previous leader-- a computer made by japan's fujistu. i.b.m.'s machine can process in one hour would it would take roughly everyone on the planet 320 years to calculate using calculators. year to date, ibm stock is up almost 8%. and, finally, let's go to our market flash of exchange-traded funds. most were higher, led by the wer shares q.q.q. they rose nearly 1%. and that's tonight's market focus.
>> susie: the tablet wars are heating up. now, it's microsoft. a new compact tablet. that brings us to tonight's word on the street: microsoft. james rogers, technology editor at thestreet.com joins us. >> james, we have very little information but i know you have been on top of this whole thing. what are you expecting it seems clear we will gets a-- from microsoft today what we're hearing is it likely to involve running on arm processor, the highly
acclaimed processors found in smart phones that are very good to use also expect maybe some form of integration between x box and the tablet. maybe a tight skype integration as well. we have seen talk about how they want to make things like xbox much more closer to their core traditional software and i think today we might get an indication of how that will work out. >> susie: so is this more as an entertainment system or business use. because there was a lot of debate about that. >> that's a very interesting question. we all know that when apple launched the ipad it was predominantly a consumer tool and then really adopted by enterprises. i think we will see a similar trend with this. i think initially this will be an entertainment device. particularly with the xbox integration that everyone is expecting, i think that will be used for things like live content stream and that type of thing which is very much in the entertainment sphere. but we're going have to wait and see. i will be very interested to see what this thing looks like and i do think it has to be pretty spectacular to challenge the ipad. >> susie: exactly, i mean
apple has massive number of fans. it has been doing just great so what are the chances that microsoft can compete with apple and some of the other players out there? >> i think what people will be looking for is you know, a very, very sort of positive experience in terms of actually using the device. we saw apple recently launch its next generation ipad which is just a very, very great, 4 glte, the retina display t looks absolutely fantastic. we have to see microsoft somehow step up to that challenge. i also think they might have to challenge apple on price as well. there are a lot of things it will have to do. because apple basically went out there and recreated the tablet market which was moribund before it launched the ipad. and now tablets are synonymous with ipad. microsoft is really going to have to do something special to get over that. >> susie: and will it be special enough to do anything for microsoft stock which has been in a trading range for most of the last couple of years f you look at the stock chart there, sure this year it's up almost 15%.
but what is this new product announcement going to do for microsoft stock. >> i would be surprised if we see a significant uptick after this. like for me the big growth catalyst for microsoft moving forward will be the launch of windows 8 later this year which we expect maybe in september or october so i think that's going to be the big thing. this is nice, this is like a good start, really, something that maybe microsoft feels it has to do to move forward. but do i think it will really move the needle, no. >> susie: any disclosures to make, dow own the stock. >> no, none whatsoever. >> susie: all right, thanks so much. james rogers of thestreet.com. tomorrow on n.b.r., another update on the housing recovery. we'll see how many homes builders broke ground on last month with may's housing starts. and j.p. morgan c.e.o. jamie dimon is back on capitol hill, this time, testifying at the house financial services committee about his bank's huge trading loss.
there's been a change in thinking about the reverse mortgage market. what was once rife with fraud is now becoming a tool that many retirees are using to make ends meet. karen gibbs, founder of the gibbs perspective, has a quick tutorial on the basics of reverse mortgages. >> are you considering a reverse mortgage which allows you to tap the equity in your primary residence? if so, you'll need to do your homework. to be eligible, you must be at lease 62 years old, own your home outright or have a low mortgage balance that can be paid off at closing. the mortgage amount is based on your age, interest rates and the value of your home. you can receive the funds through a line of credit, a monthly payment, or a lump sum. you'll never owe more than the house is worth, no matter how high interest rates go or how many payments you've received. the mortgage is due in full plus interest and fees only when you move, die, or sell the home. any remaining equity belongs to you or your estate.
but there are downside to reverse mortgages: high closing costs, adjustable interest rates and mortgage insurance that can all add up and mortgage counseling is required by law. if you're thinking of a reverse mortgage as a way to get cash to pay bills or looking for ways to transfer assets in your estate, consult an attorney familiar with estate planning to find out what's best for you. i'm karen gibbs. >> susie: that's "nightly business report" for monday, june 18. good night, everyone. we'll see you online at nbr.com and back here tomorrow night. "nightly business report" is brought to you by: captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org